Client Q&A: My company has been sued for replevin, conversion, promissory estoppel, and constructive trust

My company has been sued for replevin, conversion, promissory estoppel, and constructive trust. What do these words even mean?!

Misappropriation of assets takes many forms and invites all kinds of claims seeking various legal remedies. Very often, many alternative claims are asserted for the same alleged wrong. For instance, it is quite common for a complaint to assert a breach of contract but also recite a whole set of quasi-contractual and tort claims based on the same or related factual allegations. But if breach of contract and fraud at least sound like commonly understandable terms, some others often require translation from the legalese.

Replevin

Replevin is basically a demand to return a specific item of personal property. It is one of the oldest claims known to the common law. For instance, if Peter claims that Paul is improperly withholding Peter’s horse (or car, or laptop), he may seek replevin. It does not matter whether Paul stole the item or just refused to turn it back after the period of his lawful possession expired. The essence of the claim is that Peter wants Paul to return the item. Replevin is not a claim for money damages – only for return of the property.

Conversion

But what if Paul has already sold or otherwise disposed of the item – or used it in a way that makes it no longer valuable for Peter? Then the only thing Peter could recover is money damages – which he will likely do through a conversion claim. Conversion has been defined as unauthorized assumption and exercise of control over personal property of another, interfering with that person’s right of possession. By selling, using, or otherwise misappropriating Peter’s property, Paul “converts” it to his own benefit. To prove a conversion claim, Peter would have to show his ownership of the property or at least a right of possession superior to Paul’s; he would also have to show that Paul did something wrong in the way he treated the property, causing damages to Peter. Unlike replevin, Peter’s remedy in a successful conversion claim is money damages. But just as replevin, a conversion claim is concerned with a specific and identifiable piece of property.

Money as the Subject of Conversion

Can money itself be the subject of a conversion claim? The answer is yes – but only in certain circumscribed situations. On the one hand, money is likely the most frequently misappropriated kind of asset, and claims for conversion of money are quite common. On the other hand, money is fungible. That is, if Paul borrowed $1,000 from Peter and failed to pay it back on the due date, Peter will have a breach of contract claim against Paul – but not a conversion claim, because the $1,000 that Paul failed to pay back is in any event not the same $1,000 that he borrowed. In other words, the $1,000 that he was supposed to pay back is any $1,000 and not any specific and identifiable $1,000. Accordingly, a payment obligation by Paul does not give rise to a conversion claim by Peter.

It may be a different story if Peter gave Paul $1,000 in a sealed envelope with a specific instruction to hand it over to Tom. In this situation, the money may be treated as specifically identified and segregated with an obligation to treat it in a particular manner – which, in the event of Paul’s misappropriation, may give rise to a conversion claim. Of course, the role of a sealed envelope may be played by a bank account, as long as the funds in question remain specific, segregated and identifiable. But Paul may not avoid a conversion claim by wrongfully merging the funds entrusted to him under specific instructions with his other funds; that would be like opening an envelope that he was instructed to keep sealed.

Promissory Estoppel

Promissory estoppel is an equitable doctrine that protects one party’s reasonable reliance on another party’s clear and unambiguous promise in situations that a traditional breach of contract claim may not cover. It becomes particularly applicable, for instance, where the contractual terms were initially not clear or purportedly changed over time by some supplemental promises. If the party on the receiving side of such a promise took some steps to change its position in reasonable reliance on the promise, it may have a basis for a promissory estoppel claim. In other words, the promissor may be “estopped” from revoking the promise even if it does not directly translate into a contractual obligation.

Constructive Trust

Constructive trust is another equitable doctrine that is often regarded as a remedial device rather than an independent cause of action – but is still commonly asserted in complaints as a separate claim. The essence of constructive trust is that the defendant is deemed to hold misappropriated assets in trust for others – and is thus compelled to account for them to the rightful owners. As courts have held, the main purpose of constructive trust is prevention of unjust enrichment. The range of situations where constructive trust may be imposed is quite broad – but there must be some underlying misappropriation or other substantive wrong giving rise to the claim.

Duplicative Claims

While many claims discussed here, and many others, are often asserted alongside a traditional breach of contract claim, such alternative pleading may or may not be proper depending on the specific factual allegations in the complaint. Even though pleading different legal theories in the alternative is generally permitted, certain claims may be impermissibly duplicative of others or simply inconsistent with others asserted in the same complaint. For instance, where the parties’ business relationship is clearly governed by a valid and enforceable written contract, such tort claims as conversion and such equitable claims as constructive trust concerning the same subject matter are likely to be precluded.

Conclusion

A timely and well-crafted motion to dismiss may make cut off redundant and inappropriate claims and make the case much simpler, streamlining its resolution. So the basic advice always remains the same: if you get sued, consult with competent counsel as early as possible. Schlam Stone attorneys have extensive experience in litigating all kinds of business-related claims.